Price clustering and the panic trading hypothesis: evidence from an African coup d'état

Júlio Lobão and Ricardo Correia

Afro-Asian Journal of Finance and Accounting, 2024, vol. 14, issue 6, 873-884

Abstract: This paper investigates price clustering in the stock market of Egypt in the context of the coup d'état that took place in that country in July 2013. The political uncertainty provoked by the coup offers a major opportunity to explore the causes of price clustering. Our results provide a strong support to the recently proposed panic trading hypothesis, which suggests that during periods of heightened political uncertainty investors are more likely to leave the market settling quickly on a rounded price. Our study documents that the hypothesis of uniformity in the distribution of the final digits is strongly rejected as stock prices tend to cluster significantly on final digit 0. Moreover, multivariate analysis shows that clustering increases with price level and capitalisation, and decreases with volatility and trading volume. These results carry important implications for both academic researchers and practitioners.

Keywords: stock market efficiency; price clustering; Egypt; coup d'état; political uncertainty; panic trading hypothesis. (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:ids:afasfa:v:14:y:2024:i:6:p:873-884

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